Thursday, September 2, 2010

The Next CBA Simulation: What Did We Learn? – The Colonel

In “The Next CBA: Part I,” a new construct for the NHL’s Collective Bargaining Agreement between Management/The League and Players was offered. It was not a complete CBA re-write because, knowing there are some good things in the current CBA, there are things that just do not need to be changed.

Instead, it addressed the one issue standing as potentially the most contentious in 2012. The Kovalchuk arbitration clearly indicates the NHL is out to close the loophole on circumvention of the intent of the Salary Cap. Assuming a formal fix for this issue would be present in any new agreement, the goal of 12,735 words plus 30 charts, in eight blogs over 10 days was to dissect what could be done in order to avert another Lockout over this particular issue.

As a construct to test new CBA changes, recommendations for changing current contract structuring were offered to address Cap circumvention. A ‘simulation’ of sorts then resulted by laying the current salary structure over the top of these changes.

Armed with that information, some conclusions can be drawn about negotiating the next CBA which are offered below. After quickly summarizing the recommended CBA changes, the blog continues to discuss where the bones of contention will arise.

The Proposed CBA

It is not a stretch to offer that the Salary Cap is THE main reason there is exciting parity in the NHL. So for the entertainment value that sells TV/cable/satellite and tickets and allows for growth of The Game, I say the Salary Cap must stay in any new agreement.

I equally stand behind my earlier statements: “…Sew up that loophole tightly, I say. But do it with the least amount of change possible….” That' because revolutionary change, like the current CBA was, is borne out of desperation, takes longer to digest and creates the kind of pause that causes, well, Lockouts. You cannot simply sit down and decide to make revolutionary change to the current agreement after The Cup is raised in 2012. There is simply not enough time over the summer to inform all parties, get in the votes and ratify a new agreement all sides will want to discuss and study in detail prior to signing. If you want a revolution, start now so it can be digested over the next two years.

Instead, the easier solution to get past everyone would be evolutionary change that still includes a Salary Cap while closing the loophole that circumvents the spirit of the Cap right now. Even that change will not be able to pass without compromise from all parties. To that end, the following main points of my proposed CBA were:

1. Maintain a Salary Cap Ceiling starting at $60M U.S. that increases by a modest amount each year

2. Maintain a Salary Cap floor that is never lower than $16M below the Ceiling

3. Every five years, review overall hockey receipts for tickets, merchandise and media monies from any NHL organization and induce a Five-Year Adjustment (FYA) to the base Cap figures

4. Allow for authorized, long-term contracts that can lower overall team Caps for three Franchise Contract Players (FCPs) per team

5. For players not designated FCPs that are under age 35, allow for one-to-three year contracts

6. For players not designated FPCs that are over age 35, allow for one year contracts

7. Set a ceiling for Non-FPC (NFC) contracts, a floor with League Minimum Contracts (LMCs) and a ceiling for Entry Level Contracts (ELCs), all with a predictable, annual salary increase.

8. At the end of FCP, NFC, LMC or ELC agreement, a player becomes an Unrestricted Free Agent (UFA)

9. To bridge the gap where current agreements surpass the restrictions on age or term limits, allow for a one-time, one-year exception followed by UFA status to bridge the gap

Regardless of whether or not these are the exact changes put in place, the ‘simulation’ of doing so team by team in the blogs of the last 11 days were illustrative of points of contention for any new CBA with the same desired end state. Taking the points above one at a time shows the discord.

Based On the Proposed Adjustments, What Did The Simulation Show Us?

Here are the pertinent stats from the analysis:

1. There was an average of 8.23 players per team needing contract adjustments: a. The highest number was 15 players (CHI) b. The lowest number was 3 players (WSH)

2. An average of 1.43 players lost 3.16 years of term per team: a. The highest number of players was 5 (PHI) b. The highest number of term years was 17 (CHI) c. The lowest number of players was 0 (ANA, ATL, BUF, CAR, COL, CBJ, FLA, LAK, STL and TOR) d. The highest number of term years was 0 (same as above)

3. Average amount of current contract money back to teams was $16.188M: a. Most back was $84.966M (CHI) b. Least back was -$477.5K (ANA)

One look here and at Larry Brooks’ NY Post column on NHL ‘givebacks’ to approve Kovalchuk’s contract, and you might draw a conclusion that a rudderless NHLPA is likely to sink, and sink fast here. The Lockout drumbeat and signal fires are a brewin,’ you might believe.

But in working through a potential, new CBA and its impact on salaries and the Cap, we learned a few things that if known up front, may make working through the process somewhat easier.

First and foremost is the fact that if you are a good enough player, somebody will find a way to sign you. Sounds simple and flippant, but it actually runs as an undercurrent to inflated free agency contracts and why some players continue to skate on into their 40’s. That fact will never disappear from the game no matter what the construct of contracts becomes.

Next is the point that if teams are going to sign 24 players, on average only 1/3 of contracts needs to be adjusted. Sure the Blackhawks had 15 to redo but, respectfully, they mortgaged themselves to the hilt in succeeding to win The Cup. There were still 17 other teams at, or below, the average number of affected players. So no matter how the new CBA is written, it is likely some current contracts will need to be adjusted.

The average number of redone contracts is weighted heavily against long-term, over 32-year-old players. They are established players with substantial salary. They are losing term based on NFC or LMC status and under 35-years-old limits of three years per contract, plus one-year terms for over-35 players. This is the vast majority of money coming back to clubs, but accounts for only about 10% of players. Renegotiated contracts which are likely in a new CBA will RELATIVELY put more money in teams’ pockets. And other-than entry level contracts from now through 2012 may carry too much term after the new CBA is approved.

But in my proposal, the loss of term equates to UFA status and the ability to bargain up to the NFC maximum starting at $5.75M plus bonuses. This is a contract price 90%+ of the NHL already rests under. And in this simulation, the payback was UFA status. If the League and Management get consensus for a similar restriction to term/Caps in place, they will likely do so only with a compromise on UFA status, the one ‘free’ thing they can give back to players.

Another significant hit on contracts that puts money back into the teams’ coffers is the only group that is truly screwed here. There were 23 players with Entry Level Contracts (ELCs) that the proposed structure indicated were overpaid, often in the millions of dollars. While only a handful of these players will still be under an ELC when 2012 gets here, if the ELC system is going to be cut back in total dollars allowed, it should be done now or all parties will need to determine how to grandfather any approved contracts in.

And based on Larry Brooks’ article in the Post, it looks like the NHL is moving RIGHT NOW to limit the counting of any FUTURE contract money past age 40 and the dollars in any years after the first five in the Salary Cap. This, if you want to call it an attack, strikes at Management who wants more than their cake for the sake of producing a winning team, and Players who are willing to sign that kind of agreement. It should be noted these restrictions will likely be a starting point for the next CBA’s negotiations.

And On Another Note…

A persistent burr under Players’ saddles is the subject of escrow money. While legalese is required in the current CBA, it is still difficult to read and sort through both Section 50.4 (d) (“Escrow Account,” “Escrow Percentage,” “Escrow Agent”) and Section 50.11 (Reconciliation and Distribution Procedures). It may not also be acceptable for salaries to increase or decrease based on a sliding scale driven by my proposal’s Five Year Assessment (FYA) review. But the question should be ‘Does the current Escrow system work, or can something else more palatable be done?’ Look at what we in the military like to call Second and Third Orders Of Effect (OOE):

Task: Take money from players throughout the year in case their total payroll is higher than the Players’ overall Players’ Share of Compensation

2nd OOE: Players lose available capital in their pocket on the assumption the league as a whole may make less profit

3rd OOE: Players are angered because they feel that they are being made to cough up money to ensure clubs break even or make a profit

While the 3rd OOE may very well not be true, the perception is put there because of the 2nd OOE. Though the overall intent was to have Players vested in the overall profitability of the League, it is highly likely the goal was not to make players down-right angry.

So if they are feeling ‘punished for a potential crime,’ ‘taxed without representation,’ or the like, perhaps another course of action could be taken. Perhaps the adjustment comes to all salaries the year following a review that indicates payroll was above the appropriate percentage of total revenues. Done in this manner, players can see where the shortage was and then pay their fair share.

No matter what the final system is, a different system will at least be explored and debated as players would like a replacement for the current escrow format.

And As A Whole…

The League needs to be ready to negotiate length of contract terms in the context of some adjustment to the Salary Cap system.

Management will be highly interested in the Cap and Escrow Systems as they affect operations and profitability each and every day.

The NHLPA needs a representative team that will keep them from being thrown under the bus in the negotiation process. Watching the Kovalchuk Ultimatum, I cannot help but hear the screeching tires and expelling air brake gas.

And none of these Salary Cap/Escrow issues are a simple, snap-your-fingers-and-it’s-fixed proposition. It takes a starting position which incorporates everyone’s minimally acceptable criteria for a solution, produces a new course of action, generates discussion and a vote, and goes back to the drawing board if all sides do not agree. For an inch-thick plus CBA, that is going to take a little time.

As for the whole lot of you out there, don’t forget the fan of the Great Game makes the whole wheel turn. (Fan-generated revenue produces Hockey Related Revenue which drives all other capabilities.) In short, gentlemen, start work NOW on an evolutionary CBA that closes the Salary Cap circumvention loophole so come the first week of October in 2012 we have Hockey.

Cause, durn it all, if the Mayan Long Calendar is correct, I, Fan, want my 20+ games before December 21, 2012 rolls around…